Improving mix and operating leverage through rapid sales growth are expected to drive significant margin expansion over the next five years, according to the research house.

Future Consumer shares rallied more than 19 percent to close at Rs 60.20 on Tuesday after brokerage house Motilal Oswal said FCL was best play on the huge window of opportunity for brands using modern retail methods of distribution.

In addition, FCL appears best placed among Future Group companies from a revenue, profit and RoCE perspective, given the group’s focus on retail expansion to drive growth in its burgeoning brands portfolio, it feels.

The investment firm has initiated coverage on FCL with a Buy rating and target price of Rs 76, implying around 50 percent upside.

"The company is expected to be PAT positive on consolidated level only in FY19 rendering near term P/E valuations meaningless. We, thus, value FCL on EV/sales basis, assigning a multiple of 2.2x (60 percent discount to EV/sales of coverage consumer universe). This results in a target price of Rs 76, implying around 50 percent upside," it explained.

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Improving mix and operating leverage through rapid sales growth are expected to drive significant margin expansion over the next five years, according to the research house.

Motilal Oswal believes FCL offers a rapidly compounding and potentially high return on capital employed (RoCE) play on the massive growth opportunity in the Indian FMCG sector and particularly for brands focused on modern retail segment. "Our detailed analysis on potential investment returns from a three-year perspective suggests a healthy three-year CAGR return of 24 percent," it said.

Future Consumer is an integrated consumer company having a portfolio of brands in categories such as staples, fruits & vegetables, processed foods, home care and personal care. It has a distribution network largely dependent on organised retailers and an overall footprint of around 80,000 stores.